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Why General Motors shares just climbed 5%

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What happened

Actions of General Motors (NYSE: GM) jumped 5.3% at 12:10 p.m. EST Thursday in response to a bullish note from analysts at Argus Research.

Argus upgraded GM’s stock from suspension to purchase this morning and assigned the automaker a price target of $ 56.

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So what

The analyst said, based on most standard metrics, GM shares appear to be valued favorably. Although the stock is currently selling for 18.7 times earnings, most analysts expect activity to improve enough in 2021 to give GM a valuation of 6.8 times earnings forward. Argus also points out that GM has a strong balance sheet and generates strong cash flow with high profit margins, reports StreetInsider.com.

Beyond those numbers, however, Argus seems particularly impressed with GM’s efforts to diversify with electric and autonomous vehicles. He singled out the company’s Chinese joint venture and its Ultium rechargeable battery for special praise.

Now what

For dividend investors, there is even more good news. Because GM generates such high margins and such strong cash flow, Argus expects GM to restore its dividend soon. Historically, GM has been a generous payer of dividends. It was only because of the financial strain caused by the pandemic that GM suspended dividends in the second quarter of 2020.

How Much Can Shareholders Expect? GM had typically spent around 25% of its annual profits on dividend payments and sometimes more. With analysts forecasting up to $ 6 per share in pro forma profit this year, it is not out of the question that GM could pay a dividend of $ 1.50 per share, which would yield an above-average return of 2.9%.

Crossed fingers.



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